When Fair Competition Crosses The Line — The Tort Of Business Interference

You may have heard the phrase “it’s just business,” or something along those lines, to describe a situation in which a business loses a customer or a sale. “It’s just business” implies a certain cold, even cutthroat mentality towards business relationships. And in many respects, that’s the reality of our capitalist economic system. But at the same time, there’s limits to what others, especially competitors, can do to your business.

For example, Iowa law recognizes that people and business have an obligation to not unlawfully interfere in the known business relationships of others. The key word there is “unlawful.” On the one hand, every time you lose business to a competitor, there’s a chance that the competitor “interfered” with your business by having better marketing, a better reputation, cheaper prices, or even actively soliciting your customers. That’s life in the business world, and that’s not the unlawful interference that the law prohibits. *

* Like everything else in the business and contracts dimensions, these are general rules that can be widened or narrowed depending on innumerable factors, such as the relationship between you and the person who took your business, the relationship between you and the customer, and whether there’s some sort of contract between you and the interfering party, perhaps a noncompete or nonsolicitation agreement. Business interference matters must be evaluated on a case-by-case basis.

Your actual and potential business is protected from unlawful interference. To claim protection for potential or prospective business, as opposed to actual business, the potential business needs to be more than merely speculative. You can’t claim that everyone on the planet, including the 99.9% of people who have never heard of you or your business, are potential business. Rather, you have to prove a reasonably likely business relationship that will be of financial benefit to you.

People can’t interfere with something that they don’t know about. You have to prove that the other party either knew of the actual or potential business or else had knowledge of facts that, with reasonable inquiry, would have led to disclosure of your actual or potential business relationship.

As I mentioned, not all interference is prohibited by law. Only unlawful or “improper” interference is illegal. Interference is improper if the other party’s interference is done with the purpose or the predominant purpose of financially harming or destroying your business.

If you can prove unlawful and improper business interference, you may be able to recover money damages to compensate you for the lost business, and even punitive damages in extreme cases. But again, this needs to be more than speculative business. And you have to eliminate other possible, legitimate causes for why you lost the business, especially if those alternative explanations have nothing to do with the other party’s potential interference. Other causes can be the internal issues that I mentioned above, or they can be external factors, such as a poor market for what you’re selling. For a hypothetical example, trying to sue for unlawful interference against the seller of combination high-speed digital copier/scanner/fax/coffee machines that yanks all the customers from your mimeograph machine business would likely be a nonstarter.

Interference with actual or potential business one just one example of several categories of “tortious interference” that the law recognizes. There’s also interference with contract*, interference with employment relationships, interference with professional relationships, and several other less common types of interference claims. Please feel free to call me if you have any concerns that some one has unlawfully and interfered with some aspect of your personal or business life or an employment or professional relationship that you’re involved in and I’ll be happy to see if I can give you a hand.

* The legal theory used by Brown & Williamson Tobacco Company against CBS during the tobacco wars of the mid-1990’s when CBS tried to air an interview with a former Brown & Williamson scientist who had signed a nondisclosure agreement with Brown & Williamson. That story and the underlying legal theory were made famous in 1999’s The Insider. Al Pacino as CBS’s Lowell Bergman: “Tortious interference? That sounds like a disease caught by a radio.”